The Universal Investment Strategy (UIS) is one of our core investment strategies. It is an evolved, intelligent version of the classic 60/40 equity/bond portfolio. Much like the classic portfolio, UIS holds both the S&P 500 index and bonds. However, UIS can intelligently adapt to current conditions by shifting weight away from stocks in difficult markets and adding weight in bullish markets.

Instead of using simple bond ETF, UIS uses a sub-strategy, called HEDGE, which can choose between different types of safe-heaven ETFs.

The equity/bond (or in our case equity/HEDGE) pair is interesting because most of the time these two asset classes profit from an inverse correlation. If there is a real stock market correction, usually ETFs included in the HEDGE strategy (Treasuries, Gold, etc) are the 'safe' assets where money flows to, providing crash protection.

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Which means for our asset as example:- Looking at the total return, or increase in value of 76.3% in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (125.9%)
- Looking at total return, or increase in value in of 29.4% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (44.4%).

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:- Looking at the compounded annual growth rate (CAGR) of 12% in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (17.7%)
- During the last 3 years, the annual performance (CAGR) is 9%, which is lower, thus worse than the value of 13% from the benchmark.

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Using this definition on our asset we see for example:- Looking at the historical 30 days volatility of 8.4% in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (18.7%)
- Compared with SPY (22.8%) in the period of the last 3 years, the historical 30 days volatility of 10.1% is smaller, thus better.

'Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Which means for our asset as example:- Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the downside volatility of 6% of Universal Investment Strategy is lower, thus better.
- During the last 3 years, the downside deviation is 7.4%, which is smaller, thus better than the value of 16.7% from the benchmark.

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Applying this definition to our asset in some examples:- The risk / return profile (Sharpe) over 5 years of Universal Investment Strategy is 1.14, which is greater, thus better compared to the benchmark SPY (0.81) in the same period.
- During the last 3 years, the Sharpe Ratio is 0.64, which is greater, thus better than the value of 0.46 from the benchmark.

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (1.12) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.59 of Universal Investment Strategy is larger, thus better.
- During the last 3 years, the downside risk / excess return profile is 0.88, which is higher, thus better than the value of 0.63 from the benchmark.

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:- Looking at the Downside risk index of 2.27 in the last 5 years of Universal Investment Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (5.59 )
- Looking at Ulcer Ratio in of 2.87 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (7.14 ).

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Which means for our asset as example:- The maximum drop from peak to valley over 5 years of Universal Investment Strategy is -16.9 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- During the last 3 years, the maximum drop from peak to valley is -16.9 days, which is larger, thus better than the value of -33.7 days from the benchmark.

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (139 days) in the period of the last 5 years, the maximum days under water of 139 days of Universal Investment Strategy is larger, thus worse.
- Looking at maximum days below previous high in of 139 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (139 days).

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Applying this definition to our asset in some examples:- Looking at the average time in days below previous high water mark of 29 days in the last 5 years of Universal Investment Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (33 days)
- During the last 3 years, the average time in days below previous high water mark is 38 days, which is lower, thus better than the value of 45 days from the benchmark.

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Universal Investment Strategy are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.